Date:08/07/2005 URL: http://www.thehindu.com/2005/07/08/stories/2005070812540400.htm

Karnataka - Bangalore

KERC calls for views on differential tariff system

Special Correspondent

Need felt for tariffs that reflect the cost factor

BANGALORE: The Karnataka Electricity Regulatory Commission (KERC) has sought the views of all stakeholders on a differential tariff system for the electricity supply companies in the State.

When power distribution was unbundled and the electricity supply companies were formed as independent companies in 2002, the KERC had favoured a uniform tariff across the State. With more deregulation and possible privatisation in the long term, the commission has found the need to have tariffs that reflect the cost factor.

Lower, higher tariffs

If there is a tariff revision based on a differential system, the Bangalore Electricity Supply Company can fix a lower tariff than non-profit making companies such as the Gulbarga Electricity Supply Company, which may have to increase its tariff by as much as 34 per cent, and the Hubli Electricity Supply Company, which may have to increase its tariff by 59.6 per cent. The increase will be required despite subsidies from the Government, such as subsidy for power supply to irrigation pumpsets.

A paper prepared by the KERC points out (quoting a report in The Hindu of June 16) that in Andhra Pradesh, power purchase agreements have been assigned to distribution companies. In that State, a differential retail tariff is being considered across various distribution companies on account of factors such as the percentage of agricultural and rural consumers requiring subsidies, transmission losses, age of power stations and type of fuel used.

After the electricity supply companies were formed, Karnataka Power Transmission Corporation Ltd. and its consultants had referred to the need for a differential tariff for several reasons. One was that losses should not be shown in the books of the electricity supply companies as this would adversely affect the ongoing privatisation process and another was that private investors might feel that the subsidy was higher if it had to been accounted in the books. There was also the question of differential bulk supply tariffs: if they were not charged, profits from one electricity supply company could not be transferred to a loss-making one.

According to the KERC, the advantages of differential tariffs include the fact that such tariffs will reflect the costs and performance of the respective electricity supply company, and consumers of a better performing company will benefit and consumers of a poorly performing company can apply pressure on it to improve its efficiency. Cross subsidies can be eliminated and the Government can target subsidies based on performance. Above all, the electricity supply companies can become self-sustaining.

On the flip side, some electricity supply companies might have to steeply raise their tariffs (see table) and that is likely to invite protests from consumers. There may also be a sense of discrimination among power consumers in different regions within the State. If the tariff is to be reduced, the Government will have to provide more subsidy.

One question the KERC is asking all stakeholders is whether a differential tariff system can be introduced while considering the present tariff revision petitions pending before it and the timeframe for it.